DIESEL BLUES

August 25, 2006

Yet another federal mandate -- an EPA order that 80 percent of diesel fuel production after June 1 meet new "ultra-low-sulfur" requirements -- is causing the latest government-inspired energy mess, says the Wall Street Journal.

The mandate has brought the freight industry to a standstill, and is creating problems in many states, says the Journal:

Rationing at stations has raised prices by nearly 40 cents a gallon since early July.

Prices in the region have hit $3.35 a gallon, and stations are limiting purchases.

Nebraska Governor Dave Heineman recently issued waivers for how long truckers hauling diesel could drive, just to keep the fuel flowing into his state.

The refining industry warned Congress and regulators about the timing of the mandate, foretelling the problems now being faced:

Refineries, fuel terminals and pipelines haven't been able to make or distribute enough of the new diesel fuel to replace the older product.

The mandate is coming into effect at the height of the agriculture harvest season, when diesel demand is especially high.

This latest energy mess recalls Congress's ethanol fuel mandate, says the Journal. In that situation, manufacturers were unable to keep pace, and the makers of a rival fuel additive, MTBE, fled the market because of liability concerns, resulting in spot gas shortages and higher prices nationwide.

Consumers will feel the pinch of a diesel crunch as well, given that an estimated two-thirds of freight in the United States is still delivered by trucks. Ultimately, higher diesel prices will find their way out of the freight industry, and into everyday goods.